B ^ bi7 fla3 CO o (Q / ;1 • /*:i Report of the Special Committee on Accounting Terminology Annual Meeting— Denver, Colorado October 18-22, 1909 AMERICAN ASSOCIATION OF PUBLIC ' 1 ACCOUNTANTS Is 5 ■6 LIBRARY OF ALLEN KNIGHT CERTIFIED PUBLIC ACCOUNTANT 502 California Street SAN FRANCISCO. CALIFORNIA Report of the Special Committee on Accounting Terminology. To the Trustees of the American Association of Public Ac- countants. This committee was appointed at the meeting of the Board of Trustees in April, 1909, and w^s insfucted " to collate and ar- range accounting words and phrases and show in connection with each the varying usages to which they are put. . . . This committee will not attempt to determine the correct, or even the preferable usage where more than one is in existence." In accordance with these instructions, the committee has attempted to bring together all the definitions that it was possible to find in the limited time at its disposal. To facilitate matters, the alphabet was divided into three sections, each member taking one. The members of the committee have found that definitions are extremely infrequent in most of the books and articles devoted to accounting subjects. It seems to be taken for granted that the meaning of the terms used is known to the reader. In the more formal text books, the indexing is often faulty, many sub- jects not being referred to at all, although discussed in the book. This necessitated a search of the text itself, which could mani- festly be undertaken only in respect to the more important terms. The committee, therefore, feels that it ha<5 been able onlv to start the train of thought. It suggests that the entire memoer- ship of the Association be requested to bear the subject in mind and to make a note of any definition encountered in any work or article on accounting subjects, whether such definition is formal or is only deducible from the context. These definitions, with the authority for them, to be sent to a committee to be collated by it and either published from time to time in the Journal of Ac- countancy, or presented to the convention in 1910 for the consid- eration of the Association. To confine the scope of the work only to those terms whose meaning is not well settled, it might be well to request from each member only those definitions with which he does not agree, together with definitions of the same terms which meet his approval. So many of the terms used are defined only by inference, often in connection with other subjects, that there seems to be no other way in which anything at all approaching a complete glossary can be obtained. Respectfully submitted, Seymour Walton, Chairman. Edward L. Suffern, Jas. T. Anyon. Committee. LIST OF DEFINITIONS OF ACCOUNTING TERMS. Account As used in bookkeeping means ( i ) A single entry or group of entries either debits or credits or both brought together under a specific heading to indicate an accounting condition. (2) The balance or result of a group of such entries. Audit An examination of books, accounts and vouchers of an individual company, firm or corporation to verify, or otherwise, the accuracy of the transactions shown thereby for a definite period. Account A running account as opposed to one regularly Current balanced. Account Sales An account of goods sold on commission, usually between a consignee and consignor. Accretion That which has grown or accumulated, a term used mainly as applying to the growth or accumu- lation of inconie.'^iKler certain conditions. JsJOLWn \'-v>.*vi?wt~ Accrued Used in relation to that which has grown or accumulated up to a certain date since the last re- ceipt or payment. Appreciation Increase in value through improvement in condi- tion or market value, applied either in respect of real estate, plant, machinery, securities or general assets. Assets Property fixed or liquid, resources of any kind capable of being converted into money or value. The term is used sometimes as applying to goodwill, concessions, franchises, deferred charges, and in English accounting even to preliminary expenses incurred in the formation of a company. Fixed Assets Such assets as are stationary and may be re- garded to a certain extent as permanent, such as real estate, buildings, plant, machinery, etc. Liquid Assets Such assets as are not fixed or permanent but are subject to conversion into cash, such as raw and finished material, book debts, securities, etc. Floating Same as liquid, sometimes called " circulating Assets assets." Wasting Such fixed assets as in the process of working Assets are gradually disappearing or wasting away, such as mines, timber lands, quarries, and other such properties. Appraisal The result of a valuation of property or assets, used mostly in connection with the valuation of fixed assets of a company or corporation. Adminisera^ion ( I ) All expenses incurred in connection with the Expenses administration of a business other than the usual expenses of operation and management. (2) The expenses of administering a trust. Adjustment An account opened to give eflfect to adjustments Account of transactions and other accounts. 380320 Accounts (i) Accounts due from debtors. (2) The ag- Receivable gregate of outstanding accounts receivable open on the books at any time. Whilst this account should be confined strictly to what its name implies it often covers such things as advances to employees on account of salary, expenses in trav- elers' hands unaccounted for, and other debit accounts not strictly accounts receivable. Accounts All accounts payable to creditors. Payable Additions to All sums expended on account of fixed assets are Capital usually called "' additions to capital," such as addi- tions to buildings, machinery, plant, etc. B Balance The difference between one side of an account and the other. Balance A statement showing the financial position of a Sheet business, its assets and liabilities, the capital em- ployed therein, as well as any reserves, surplus or deficiency there may be at a specific date. Betterment Any addition to or improvement of a property, any expenditure which makes a property better or more valuable. In railroad accounting betterments include the '' enlargement or improvement of existing structures, facilities, or equipment, of an improved or higher class taking the place of others previously existing" (Interstate Commerce Commission.) Bills All promissory notes, time notes, bills of ex- Receivable change, or acceptances receivable go under the gen- eral term of bills receivable. Bills Payable All notes, bills of exchange or acceptances pay- able are termed bills payable, and are usually kept in one account with this heading. Book Profits Profits as shown by the books, not necessarily- actual or real, but as shown by book entries. Capital This term as used in accounting is employed to express (i) The sum of the net assets of a busi- ness or undertaking, or that sum which remains after deducting the liabihties from the assets of a business or undertaking. (2) Any principal sum (usually in cash, sometimes in property) contributed to an undertaking by a partner or individual for supplying the means to operate such undertaking. (3) The value or amount of interest any individual has invested in an under- taking, and (4) Any principal sum which is used or retained to produce income or profit. Capital ( I ) An account opened and kept to indicate the Account amount of capital a partner has in a business, or an account showing the total capital invested in a business. (2) The term capital account or capital accounts is used in connec- tion with sums invested in permanent assets, such as real estate, plant, machinery, etc., these being styled capital accounts because their province is to produce income or profit. Capital All sums expended for additions to or improve- Expenditures ments of properties. Fixed Capital That portion of the capital of an undertaking which has been sunk in fixed assets, such as real estate, buildings, machinery, plant, etc., which are not intended to be sold but used to produce revenue and profit. Working That portion of the net capital of an undertaking Capital which is used or is available for the working of such undertaking, properly speaking, the liquid assets of such undertaking. Capital Stock The amount of share capital issued or authorized by a company or corporation. Capital The full amount of capital stock which a com- ( Nominal) pany or corporation is authorized to issue. Capital That portion of the capital which has been Paid up authorized issued and paid up by the stockholders or proprietors. Capital That portion of the capital representing the dif- • — Uncalled ference between the amount of capital actually paid up and the amount of the face value of the shares. Capital, The process of lessening the amount of capital Reduction of stock issued, usually by writing off losses, depre- ciation, or reduced values of property and assets. Carriage A term used in English accounting in lieu of Account freight account. It includes freight both in and out. Cash Book A book in which all cash and bank transactions are recorded. Cash Account An account of any cash transactions, receipts or payments. Cash Sales Proceeds of sales of goods sold for cash. Cash In accounting all transactions that pertain to cash Transactions receipts and payments. Cash Balance Difference between a series of receipts and pay- ments. Certificate of A paper or receipt indicating an amount of cash Deposit deposited for a specific purpose. Charge and As used in Scotch accounting in relation to Discharge trustees' and executors' accounts means an account Account whereby a trustee or executor charges himself with assets and estate received, and credits himself with liabilities and [•ayments thereout. Collateral Security for an obligation. Commission An account of commission earned or paid. Account Consignment Those accounts which relate to the consignment Accounts of goods to an agent or consignee. Cost Accounts A series of accounts devised and kept to show the cost of products or things manufactured. Cost System A system of bookkeeping and accounting which provides for determining the cost of products and articles manufactured. Cost Records All papers, books, accounts and data referring to costing. Cost Ledger The books in which the individual " job ac- counts " showing the various elements entering into the cost thereof are kept. Contra An account off-setting another. Account Construction An account employed to show the cost of con- Account struction of a piece of property. It is usually made to contain all items (such as material, labor, expense), entering into the work and in some cases interest on borrowed money is charged against this account, and even the discount on the sale of bonds issued for the work. Controlling An account usually kept in the general ledger of Account a business and is supposed to control a number of separate or detail accounts kept in another book or ledger. It is properly an account kept to contain the totals of the debits and credits of a number of accounts in order to show at any time the balance of the aggregate of these accounts. It is used mainly in connection with accounts receivable and accounts pay- able. D Depreciation As understood and used in accounting the meas- ure of deterioration in value by reason of wear and tear, decay, or other causes, of property, plant, machinery, and other assets. Depreciation An account containing charges for depreciation. Account the balance of which is transferred periodically to profit and loss account. Depreciation An amount set aside out of earnings and carried Reserve as a credit to ofifset any deterioration of assets which has taken place or is likely to arise. Depreciation A fund set aside usually created out of earnings, Fund to provide for depreciation of plant, property, etc. Discount In bookkeeping practice, this account appears to Account be charged with the following: (i) The discount paid or allowed to customers on the payment of their accounts. (2) The amount paid to bankers or brokers for discounting bills receivable or accommodation paper. (3) Sometimes interest paid on loans. The difference between the amount reahzed on the sale of bonds or securities and their par value is called dis- count. This is sometimes capitalized and carried as an asset, and sometimes as a suspense item to be charged off gradually. Deferred The name given to a class of stock upon which Stock the payment of the interest or dividend is deferred until some other prior securities have received theirs in full. Deficiency Any account showing how a deficiency arises. Account In English practice an account prepared by a bank- rupt or his representative showing how the deficiency as indi- cated by his statement of affairs has arisen. Deficit (i) An excess of expenditure over income. (2) Any balance of liabilities over assets. Departmental A system of accounts which relate to the sepa- Accounts rate workings of the departments of any concern usually in relation to the profit or loss shown by such depart- ments. Dead Weight In cost accounting a term sometimes used to Expenses indicate certain expenses, such as rent, taxes, power, insurance, heating, lighting, etc., because such expenses are pay- able whether the volume of work done is small or large. Entry Any record of a business transaction in a book of account is called an entry. Establishment In cost accounting those expenses which cannot Expenses be charged directly against the cost of an article manufactured but are spread over a volume of work, are some- times called " establishment expenses." They include such items as taxes, insurance, heating, lighting, indirect labor and miscel- laneous expenses. Estate In executorship accounting an estate account is Account opened to show the net value of the estate by cred- iting thereto all the assets of the estate as well as any profits derived from their realization, and charging thereto all liabilities as well as funeral and administration expenses, and losses on realization of assets. Executorship A series of accounts relating to the capital and Accounts income of a trust or executorship. Expenditure This term is often used by accountants to indi- cate disbursements of money only. In other cases expenditure is used to indicate not only that which has been dis- bursed but incurred as well, and in this sense it is mostly used. Equipment Used mainly in railroad accounting, includes the Account cost of locomotives, cars and general rolling stock. Equitable In English and Scotch practice such assets as are Assets made available by a decree in a court of equity for the payment of debts. Finance That which relates to monetary transactions, or industrial transactions pertaining to money or value. Fixed Capital Capital which exists in a fixed or permanent shape. All fixed assets, such as real estate, build- ings, machinery, etc., may be referred to as fixed capital. Floating Capital which is not in a fixed or permanent Capital shape, but is available or convertible, such as raw material, book debts, cash, etc. Floating An expression meaning a lien or charge on the Charge general assets of a corporation, generally made in favor of debenture holders. Floating Debt ( i ) That portion of a debt of a corporation or undertaking which is not represented by a bond issue. (2) General or ordinary indebtedness. Funded Debt That portion of a debt which is represented by a bond issue and payable at a distant date. Fund An aggregation of capital held and to be used for a specific purpose. Goodwill Whilst goodwill is a general term capable of wide application it is generally used in accounting to rep- resent the balance between the value of property and assets acquired by a corporation or concern, and the capital stock issued against such net assets ; sometimes it is included in accounts as a distinct item calculated on a specific basis, but more generally it is used in a very indefinite way. 10 Gross Profit In commercial bookkeeping the difference between the cost of goods bought or manufactured and the selling price thereof. Gross Income The total income derived from any investment * without any deductions. Gross In railroad accounting the full receipts from pas- Earnings sengers, freight, etc., without any deductions. Guard Book A term used in English and Scotch bookkeeping to indicate a book in which the original invoices of purchases, etc., are kept or pasted. H Hypothecate To pledge or mortgage. Impairment An account which exhibits the net insolvency of a Account company, i. e., the excess of its liabilities, including its paid up capital, over its assets. In.personal Accounts which represent conditions and record Accounts the profits, losses, receipts, expenditures, assets and liabilities, but do not represent persons. See Personal Accounts. Income The account which sets forth the entire income for a fixed period whether actually received or not. The gain which proceeds from property, labor or business. The remuneration derived from skill or labor. The proceeds of the property of an estate. Index Ledger A ledger arranged alphabetically with index sheets interspersed. 11 Individual A term applied to personal and customers' ac- Account counts. Individual A term used to designate a customer's ledger. Ledger Installment An account book used for the record of install- Book ments due and payable on stock or property. Interest A revenue account to which is debited and cred- Account ited interest incurred or earned whether paid or not. Intermediate A ledger used for the purpose of recording those Ledger sales and purchases of a trader which are of almost daily occurrence with the same persons, the total of which are posted at monthly or other periods. Internal The accounts which represent the different pieces Accounts of property and different forces at work within the business itself. Internal Check A check to protect against error which may arise where the record of accounts is such that the entries might bal- ance and still be incomplete. Inventory The annual account of stock of a business. A schedule of assets or property. An itemized list of goods or valuables with prices attached. Investment An account representing money expended in prop- Account erty outside the regular order of business. Investment The amount diverted from profits for the pur- Fund chase of securities where the surplus cannot be profitably used in the development of a business. Invoice Book A record of invoices. Invoice Ledger See Purchase Ledger. 12 Nominal - Accounts which represent income or expenditures. Accounts Accounts used for the purpose of classifying income and expenditure under such heads as rent, taxes, discounts, sales, purchases, etc., and form the material for the construction of the profit and loss account. Nominal The amount of capital for and in respect of which Capital a company, having its capital divided into shares, is registered. Nominal A ledger used for separately recording the tran.>- Ledger actions in connection with the various nominal ac- counts. O Open Account A running or unbalanced account. An unbalanced account as opposed to a closed account. An account the items of which are not finally agreed upon, and which are to be proved (if necessary) by the party seeking lo enforce the efifect of the account. Opening The entries necessary to prepare a set of books Entries of account before commencing to record the cur- rent transactions. Operating The amount available for carrying on a business Capital working capital. Operating The expense incurred in the regular transaction Expense of a business. Original The first record on the main books of accouni Entry of the transactions of a business. Outstanding An ambiguous expression, which may mean debt? Accounts due to a trader or sums due from him to others. 15 Paid-Up The actual amount which has been paid up or is Capital legally considered as paid up, in respect of the capital. Pay Roll A record of wages paid. Permanejit Comprise such investments as are necessary to jf Assets conduct the business, and must be kept in a state of efficiency in order to carry on the business. Personal Such accounts show the transactions with persons Accounts as customers' and creditors' accounts. Other ac- counts are impersonal. Petty Cash A term used to designate incidental expenditures for office supplies, etc. Petty Cash A record of petty cash always kept where total Book receipts are deposited in bank and all trade bills paid by check. Petty Ledger A ledger in which sundry accounts or account? with customers who are not expected to be regular purchasers are kept. Plant A title used to designate permanent assets, such as buildings, machinery, etc., required for purposes of manu- facture, * Posting The act of entering debits and credits in a ledger. Postponed Creditors who are disentitled to rank against an Creditors estate or property until all other creditors for valu- able consideration in money or money's worth have been satisfied. 16 J Joint Account A record of the transactions of some particular undertaking where two or more parties combine in contributing the necessary capital and services and sharing the profits or losses resulting therefrom. Journal A book used for recording such transactions as cannot be passed through other records of original entry, and for recording all transfers from one account to another. A Day Book — Its use as such is obsolete. Ledger A summary of the transactions of a business so arranged as to show the distributions and dispositions of all re- ceipts and expenditures, gross and net, revenue, and loss and gain. The book which business transactions are analyzed and classi- fied with the view of recording these transactions and of showing their result. The principal book employed in the system of bookkeeping by double entry, wherein all the transactions recorded in the journal and subsidiary aids thereto are focussed, classified and arranged for the purpose of ready reference. The center and pivot of double entry. Legal Assets Property which creditors might make available in a " Court of Law " for the payment of the debts of a deceased person. Liabilities Embrace all the debts or obligations due by a firm to its creditors, or The debts or obligations of a corporation, partnership or indi- vidual. Liquid Assets Cash and such assets as can instantly be converted into cash. 13 Liquidation An account opened when a concern is being Account wound up and to wliich are credited all the profits made in realizing the assets, and debited with the expenses of liquidation and any liabilities which may have to be paid, but which are not entered in the books. Loan Account An account representing money invested in loans. M Maintenance An account or series of accounts representing Account cost of repairs, renewals and replacements. Merchandise An account intended to represent the trading Account transactions of a business, and to exhibit gross profit made on same. An account to which are charged the purchases of material to be sold or used in manufacture and to which may be credited the materials sold or used. N Negative An account which reduces the value of another Account account, e. g., returns is a negative to sales. Net Capital The surplus of actual assets over actual liabilities. Net Invest- The difference between the total sum invested and ment the total withdrawals. Net Profits The balance remaining after all expenses of dis- tribution and establishment charges, discount, interest, etc., have been deducted from profits. The balance of the profit and loss account when the same is a gain. The surplus remaining over from ihe employment of capital after defraying all the necessary expenses and outlay incurred in its employment, and after ihe capital has been replaced or pro- vision made for its replacement. 14 Preferential Creditors whose debts are directed to be paid in Creditors priority to the claims of others in the administration of the estates of (a) A debtor in bankruptcy. (b) A deceased insolvent. (c) A company being wound up. Preliminary The expenditure in connection with the promo- Expenses tion, formation, establishment and registration of a company. Prime Cost The actual cost of production of an article, includ- ing raw material and labor, to which is added indirect expense to make the total cost. The original or direct cost of an article as distinct from the " cost of production " which term includes all expenditures in- curred in manufacture whether direct or indirect. Private A ledger reserved for the use and inspection of Ledger the partners or other proprietors of a business, and usually containing particulars as to the capital in the business, the profit and loss account, and other private matters. (Note. Successive balance sheets are almost invariably entered therein, in the form of a memorandum.) Profit and An account showiig excess of revenue over Loss Account expenditure, the balance of which will exhibit net income. This account in general shows the net profit or loss of a particular undertaking for a given period. Profit and An exhibit showing in logical order and in corn- Loss State- prehensive form the gross results from and expense? ment of operating a business for a given period of time. Purchase Book Purchase Journal Purchase Ledger A record of the purchases made by a trader. A journal devoted to entries relating to account- payable. A ledger containing creditors' accounts. 17 R Real Account Represents the values of actual assets, or the amount of actual liabilities, such as real estate, machinery, loans and mortgages. Am Enc. Real or property accounts ; the tangible thing is in a property account. Cole. Real Estate Immovable property ; usually confined to land and buildings erected thereon. Am. Enc. Should represent on the books the value of the building. Cole. Redemption A sinking fund established for the payment of Fund redeemable debentures, funded debt, or other obli- gation. An amount set aside at regular intervals from profits which will be sufficient to discharge an obligation at maturity. A reserve fund. Am. Enc. A fund accumulated to redeem outstanding obligations at the end of a certain time. Rahill. Representative An account whose function is to complete the A.ccount double entry by representing the transactions de- scribed or recorded by personal accounts. Thus, sales account furnishes the double entry for customers' accounts and purchase account that for creditors' accounts. Real estate account repre- sents the value of investments in real estate, etc. Am. Enc. Xotc. This definition is confusing. How does the sales ac- count represent the sales any more than merchandise account represents the merchandise, or expense account the expenses? The last clause seems to describe a so-called controlling account. Keister uses the term in place of controlling account. Reserve Fund An amount set aside out of profits to provid* against unforeseen contingencies. A sum set aside to offset the depreciation of an asset, reducing net profits to that extent. A reserve fund is a sum set aside out of net profits which appears on the balance sheet as a credit. Am. Enc. A reserve fund is a cash asset and is an amount reserved for some specific purpose. A reserve or reserve account is created 18 by charging the revenue account and crediting a specific reserve account. Tipson. Auditing. May appear on the balance sheet in one of three combinations : (i) among assets only, in which case specific property is set aside; (2) among both assets and liabilities, in which case specific property is set aside from net income as a safety fund ; (3) among liabilities only, in which case the amount is deducted from net income and shown on the books as a safety fund, but the actual property is left among the general assets. Cole. The amount set aside from profits to meet contingencies. ( Put among the liability accounts.) Montgomery-Dicksee. May be created out of revenue and invested same as a sinking fund; but instead of being accumulated to meet an outstanding obligation, it is reserved for some specific purpose, such as the purchase of additional property. Rahill. Reserved Fund Is a fund set aside for any special purpose and should always represent actual cash — and have a separate bank account with extra check and bank book. Keister. Revenue A term sometimes used to designate profit and Account loss account. Revenue accounts. Those accounts which relate to profits and losses, income and expenditures, as distinguished from capital accounts which relate to assets and liabilities. Am. Enc. A revenue account is used by non-trading concerns to determine the amount of net income earned. It is charged with the debit balances of all nominal accounts and credited with those with credit balances. Tipson. Theory. Shows the amount of business done — the amount of expendi- ture — and the amount of surplus or profit. ^^lontgomery-Dicksee. An account of the revenue derived from the business in which we are engaged ; in other words an account of our gross gain or profit. Rahill. Note. This takes into consideration only the profit side of what is usually called a Revenue .\ccount. Another definition by this author includes items of cost, expenses or losses. Revenue Expenditures made in connection with the run- Expenditures ning expenses of the legitimate business of the firm or corporation concerned. Am. Enc. 19 What is spent to earn a revenue. Tipson. I'heory. That which is made to conduct a business, but by means of it no permanent asset is acquired. Tipson. Auditing. Whatever is expected to be consumed during the earning period should be charged to revenue. Cole. If it has only had the efifect of putting the earning power of the undertaking upon the same footing as that which had pre- viously obtained — it must be charged against revenue. Mont- gomery-Dicksee. Revenue They are distinguished from capital receipts by Receipts being exclusively derived from the sale or exchange of the commodities which the company was organized to buy and sell, the excess of receipts over expenditures constituting net profit, or added actual capital — as money received from customers' accounts. Am. Enc. Revenue Receipts are all the other (than capital) sources of income of a business. Tipson. Theory. Made to cover all profits whether realized in cash or not, even when arising from an estimated rise in value of fixed assets, or when not incidental to the nature of the business. Montgomery- Dicksee. Receipts derived as the direct result of our trading, as dis- tinguished from capital receipts resulting from the sale of capital stock, or the proceeds of bonds, mortgages, etc. Rahill. Selling That portion of expense of a business which con- Expense sists of commissions, salaries of salesmen, and other expenditures which can be allocated to the cost of selling goods. Am. Enc. Single Entry A method of keeping accounts which does not record a debit for every credit, and which does not furnish a trial balance or provide for any check on the accuracy of the work on the books of account other than that of calling back the postings or entries. Am. Enc. Where each amount is only recorded on one side of the ledger, either as a debit or a credit. Tipson. Theory. 20 ; cu Involves no particular system. It merely records charges to customers and obligations to debtors (sic) ; it therefore is a mere memorandum of indebtedness. Rahill. Sinking Fund An amount set aside to provide against anticipated losses on redemption of debentures, expiration of leases, etc., and specially invested. ... A species of financial arrangement by means of which a fund is created to redeem or extinguish a debt either already incurred or about to be incurred. . . . The distinction between sinking funds and reserve funds is that the former is a sum set aside and specially invested, thereby appear- ing on the balance sheet as an asset. The sinking fund represents cash invested ; the reserve fund represents undivided profits, and may at any time at the option of the directors be transferred fo»- purposes of dividend. Am. Enc. A fund set aside out of assets and accumulated at interest for the purpose of meeting a debt. Tipson. Auditing. Such funds must always be utilized in something which can be converted into cash at once. Cole. An amount set aside and specifically invested for the purpose of meeting a future loss upon redemption of bond issued at a discount, renewal of leases, etc. Montgomery-Dicksee in treating of liabilities. A fund set aside or created out of the revenues of a company into which we sink the funded debts of a company at the time of their maturity. Rahill. Created by payment of an annual sum, to the amount of which bonds are cancelled, such bonds being singled out by means of drawings which take place at stated intervals. Drawn bonds are repayable at any time, and cease to bear interest from the date on which they fall due. Keister. A certain sum set aside to provide for the payment of bonds, or other obligation maturing at some future time — treated as an asset and usually draws interest. Keister. Surplus The excess of assets over liabilities. . . . The credit balance of a profit and loss account. Am. Enc. Excess of assets over liabilities, including capital stock. It is really undistributed profit. Tipson. Theory. 21 Excess of resources over specific recognized liabilities. Cole. Net surplus over and above all debts, reserves and fund ac- counts. Rahill. A certain portion of the annual profits set aside for the pur- pose of creating a fund to meet reverse in profits or unforeseen emergencies, etc. (The same words are used to define a Sur- plus Fund.) Keister. Surplus Fund Formed by periodically setting aside a portion of the net profits of a corporation — to provide an unspecified reserve for contingencies Tipson. Theory. Certain portion of the annual profits set aside for the purpose of creating a fund to meet reverse in profits or unforeseen emer- gencies, etc. Keister. Suspense A summary account to which are transferred the Account balances of doubtful accounts from, the customers' ledger, and in which they are retained until such time as they can be definitely disposed of. Am. Enc. Designed to contain all items whose ultimate collection is doubt- ful. Tipson. Theory. Mr. Tipson in Auditing quotes Lisle as follows : " An account opened for the purpose of having posted to it items which the bookkeeper is unable for the time to determine the proper account to which they should be posted." He then gives examples of sus- pense accounts with credit balances. Lisle says that a suspense account should never be used for any other purpose. Dicksee seems to use the term to represent accrued items in nominal accounts on a balance sheet. Mere temporary catch-all, used to receive items of which the ultimate disposition is not yet known. Cole. An account into which is carried all items whose ultimate col- lection is doubtful, whether notes or accounts. Rahill. An account into which are carried all items whose ultimate collection is doubtful, whether notes or accounts. Rahill. Trade Deduction from list prices allowed to jobbers. Discount Am. Enc. 22 Deduction from list price when it is larger than a fair return for the use of money. Query. Is a discount of say io% or more in 30 days a trade or a cash discount, even when forfeited by non-payment within the time? Trading An account dealing with expenditures made in Account the manufacture of product or purchase of goods for sale and cost of getting such goods into a salable condition, to which is credited cost of goods turned over or sold in the period covered by the account ; or by the introduction of gross sales, exhibiting the gross or manufacturing profit prior to deduction of selling and general administrative expense. It should include nothing that will not vary with the amount of production. Am. Enc. A trading account is resigned to show the gross profit on trad- ing, i. e., the total excess of the amount charged for goods sold over their purchase price together with any expense attendant on their acquisition. The purpose is to show the amount of pur- chases, sales, returns by customers, returns to creditors and the expenses attending same. Tipson. Theory. Shows the elements of net principal income. Cole. Arranged to show gross profit on goods sold, regardless of such charges as advertising, salesmen, expenses, etc., p. 169. But on p. 86 travelers' expense and salaries and discounts allowed are included and on p. 127 commissions are also included, while on p. 79 are included general expenses, reserves for doubtful ac- counts, depreciation of office furniture, models and drawings. Greendlinger. The merchandise account of a mercantile company. Its design is to show gross profit on trading. It includes freight. Rahill. Deals with purchase-costs and proceeds of sales. Cost includes outlay for materials, freight, duty and other charge incidental to the acquisition of the raw product ; also labor and costs of manu- facture. Rahill. Treasury Capital stock unsubscribed, or of which a corpora- Stock tion has acquired possession from its original own- ers. Stock set aside for sale in order to raise working capital. Am. Enc. 23 Cominonly bought on the assumption that it has been paid for, issued and returned to the treasury. W. H. Emrich in Auditor. Corporation treats all stock as if it were issued, and counts as property its own stock in its treasury. Cole, p. 94. Issued and outstanding stock of the company that has been donated to or purchased by the corporation and which is held sub- ject to disposal by the directors. To style unissued stock treasury stock is a misnomer. Conyngton. Several questions in C. P. A. examinations in different states treating unissued stock as treasury stock. That portion of the paid up stock of a company which reverts to the treasury, and thereby reduces the company's liabilities with- out impairing its assets ; hence it is that donated stock is unquali- fiedly treasury stock, and that forfeited stock and repurchased stock are, in a measure, treasury stock. (Unsubscribed stock, stock reserved by the incorporators for future sale and unpaid subscribed stock are not treasury stock.) Rahill. Keister treats unsubscribed stock as treasury stock. Trial Balance A number of excellent definitions might be given. The object in referring to the subject here is only to call attention to the term when used in the report of an ad interim audit, instead of the term Ledger Balances. Suggested definition. A trial balance is a table of the balances shown on a ledger for the purpose of trying their accuracy. When successfully compiled it ceases to be a trial balance and becomes a statement of ledger balances. Turnover A term used to designate the cost of goods sold. (Illustration shows material and labor.) Am. Enc. The cost of goods sold during a certain period. (Illustration shows net purchases only.) Renn's Auditing. Lisle, in speaking of percentages, uses turnover as the same as sales and as distinguished from the cost of goods. Prime cost of the goods sold. Rahill. V Voucher A document which certifies or verifies the correct- ness of charges for values paid out or parted with, or of credit.^ for values received. Am. Enc. 24 Vouching consists of obtaining evidence (usually documentary) that the transactions recorded in the books are facts. Montgom- ery-Dicksee. Any memorandum which will establish the validity of the trans- action should be accepted as satisfactory. Renn's Auditing. W Watered Stock which appears on the books as fully paid Stock up, but for which only partial or no value has been received, and which, therefore, represents some inflated or ficti- tious value. Am. Enc. Capital stock issued for which no value has been received. Tip- son. Theory. An increase of the capital stock of a corporation without a corresponding increase in the assets of the company. Stock ac- quired for less than an equivalent exchange of value. Rahill. Stock issued above the authorized capital. Keister. If all the original capital stock has been issued and the company should issue stock to pay dividends, it would be " watering." Keister. Working That portion of capital used in the active opera- Capital tions of a business. It may consist of (a) Capital stock subscribed and paid, (b) Capital stock sold to stockholders to raise cash, (c) Dividends or surplus undistributed, (d) Part of purchase money of business allowed to remain unpaid, (e) Loans from bank or otherwise, (f) Proceeds of accommodation notes, (g) Proceeds of sale of bonds, (h) Assessment on stock- holders. Am. Enc. All assets available as cash for the carrying on of a business. Tipson. Theory. A certain amount of money set aside for the purpose of con- ducting the business. Keister. 25 \ 14 DAY USE RETURN TO DESK FROM WHICH BORROWED LOAN DEPT. RENEWALS ONLY — TEL. NO. 642-3405 This book is due on the last date stamped below, or on the date to which renewed. Renewed books are subject to immediate recalL i C 1970 8 5 i_D Wt ires -iiwi ^sio - V ' ! T -not A an^ a 'co General Library (?9V9tl'o°r47V1.32 UoiversKy^ofCaUforoia